Zero would literally mean the ECB is giving away free money to the banks. A small charge to cover administrative and staffing costs is prudent.
“Surprise move” according to RTE
Surprise to the reporters who were asleep at the wheel. When some of bigger banks in the world, and more informed brokers, had already flagged that this was going to happen, it does not constitute a surprise. As per earlier posts, I saw the rate cut today as a certainty
Well, after 143 pages of mainly rate cut comments here, that’s surely all folks, at least from an ECB repo cut perspective. C’est fini.
surprise? the sudden change in EUR vs USD (and schatz) would suggest that it was not priced in…
It was certainly against “consensus”.
Will Irish banks pass it on in their variable rates? It’s on 10 points but from an optics POV the government will be under pressure to tell them to pass it on…
The equivalent of a person who spends €8000 per year spending €40 more. Actually less than that since instead of spending it he’s going to give it to his stingy uncle who only likes to spend about 20% of his disposable income.
I think the Germans can put away their wheelbarrows
"The answer of course is to plow in to risky emerging markets at a time of already heightened risk.
I confidently predict some hedge funds will blow up attempting such a maneuver with leverage. "
Won’t somebody think of the Hedge Funds?
Repeat after Mr. Schauble… it’s not a liquidity problem…
currency weakening is all they know . . . If I ever hear “export your way out of it” again it will be too soon.
Negative ECB deposit rate may pose problem for QE if/when it comes - -> in.reuters.com/article/2014/11/3 … 7220141130
Does anyone know the argument against a central bank just giving a few hundred euro of freshly created money to every citizen instead vs buying sovereign debt in an attempt to increase inflation?
I can see a few problems with this of course… the admin (could be done through revenue to every PPS number perhaps). Some people wouldn’t spend it, they’d rather pay back debts or save it etc… But it could still be more effective than buying sovereign debt.
Are there any non-operational reasons why a central bank wouldn’t do it?
What you suggest is far more effective at creating aggregate demand… but central bank remits generally restrict them to buying assets with their money … So, to have the effect you suggest, they would have to pay over the market value for an asset – for example, if they said tomorrow: “we will buy any house in Ireland for €1mln” then it would obviously have that impact. Instead, their actions generally do nothing because they’re all Monetarists by ideology, they believe that creating bank reserves makes the banks lend which ups demand. Unfortunately Monetarism has been long shown to be incoherent and wrong. Personally, I wish the theory was correct because it would make the economy relatively easily to balance. What happens in reality is that they print money, yes, but they effectively unprint the bond so the private sector’s balance sheet is unchanged. Now, the Eurozone is quite different from other Central Bank areas because there is, of course, no common Treasury so QE could have had more of an impact … however, the market thinks the Eurozone is the same as other currency issuers so it just bid sovereign debt up in price in sympathy with US/UK/Japan and on the back of Draghi’s OMT promise. So now QE will have little impact on the Eurozone and probably just give the Germans more ammo for their misplaced superciliousness.
Also, on your point of getting money into the real economy, as more people understand the restrictions of current Central Bank doctrine there is a slow move toward the idea of an e-money system that would be credited by the Central Bank. So, as you say, every PPS number would get a card that would be loaded with a certain amount of Euro by the ECB. A far better idea than QE and other monetarist nonsense. Of course, the simplest way to “helicopter drop” money into the real economy, and without resorting to e-money or the like, is just to use the fiscal route … though that is less simple in the Eurozone than other currency issuing nations, again due to the lack of a common Treasury.
Thanks for your answer. I’m getting that a major problem would be the ban on buying anything that isn’t an asset. I wonder if they could get over that perhaps the best practical, easy to implement fiscal instrument to drive up inflation would be to lower VAT? Or is Vat included in eurozone calculations of overall spending? (If so i suppose it would be deflationary)
yes you get an initial deflationary print, but it would be taken account of by market participants and eventually drops out of the YOY numbers.
Didn’t Bush give Americans a once off cash sum of a few hundy dollars. Had no measurable affect.
Can’t remember what it was called. So many acronyms.
T’was a few years back, but I read a report on such ‘free-money’ schemes.
It may have been about Japan, come to think about it.
The conclusion was that once-off payments had little effect.
The money was either saved (by people without debt), or used to pay off debt (by people who had it).
It was suggested the scheme would be more effective if it was annual in occurrence and people were made aware of it’s ‘on-going’ implementation.
Are you suggesting that printing money to fund European, UK and to a lesser extent US, government deficit spending is a monetarist construct